Today, we present a sponsored podcast discussion on how businesses are exploiting open collaboration advances in procurement and finance to produce new types of productivity benefits.

We'll hear from an executive at Ariba and an industry analyst on how more data integration, and process efficiencies of cloud computing help companies to better manage their finances in tighter collaboration with procurement and supply chain activities.

Gardner: We are also here with Vishal Patel, Research Director and Vice President of Client Services at Ardent Partners in New York. Welcome, Vishal.

Vishal Patel: Thank you.

Gardner:
Vishal, let's start with you. Today’s landscape for AP and
collaborating across business is driving some new processes, new
approaches, and you have some new research. Tell us why you did the
research now and what some of your major findings were.

Patel: We completed this E-Payables 2012
research study in June of this year. It was comprised of approximately
220 AP, finance, and procurement professionals. Our intent was to get a
sense of the current state of AP operations, the usage of AP solutions,
and to capture some of the key strategies, processes, and performances
that these organizations are able to achieve. Also, to determine how
best-in-class companies are leveraging AP automation.

Gardner: And what's changed? What's new now or different from say two or three years ago?

Patel:
Traditionally, we saw AP as having a very tactical focus. We asked the
survey participants, "What do you think AP can do for you?" The
responses ranged from payroll
and reviewing invoices to responding to supplier inquiries. But in
2012, we're beginning to see a little bit of a shift more toward
strategic activities and the introduction of automation in the process.

Vishal Patel

If
we compare procurement and AP, AP traditionally is lagging behind
procurement in terms of transformation and improvement of performance in
their groups. AP is currently at the point where it's trying to improve
efficiency and trying to focus staff members on more strategic
activities, instead of responding to supplier inquiries.

That's
the general trend we've been seeing, and also just being able to
connect the various processes within the procure-to-pay cycle.

New efficiencies

Gardner:
Drew Hofler, we've seen an emphasis over the past several years,
particularly in a tough economy, on seeking out new efficiencies. We've
seen that in procurement and supply chain. Is this now AP's day in the
sun, so speak, to get efficient?

Hofler: I would
say that it is. It's probably, the last bastion of paper processing in
most organizations right now, typically seen, as Vishal mentioned, in
the past as a back office
tactical organization. They're seeing now that there are benefits that
can be had by automating -- and not just automating the process and
getting rid of paper -- but automating that on a network platform.

Drew Hofler

That allows visibility into key strategic data that drive decision-making throughout the organization and across their firewall
to their suppliers as well. These are things like visibility into
shipments, when they're coming in, visibility into line-item invoice
data on the procurement side, so that they can do better analysis of
their spend.

It's driving more strategic procurement
on the supplier’s visibility into invoice status and payment timing, so
they can manage their working capital and even access opportunities for getting paid early in exchange for discounts.

All
of this stuff flows out of automation, and I think companies are really
seeing how AP can now drive some of these strategic activities. So, I
think it is their time in the sun.

Gardner: When
we actually have an automation across the spectrum of these different
activities, it seems to me that we're not going to be just collecting
data and be able to proactively seek out new efficiencies or processes.
It allows us to have more of an ad hoc, real-time
benefit of being adept and even proactive. How is that important now,
when you look at this entire spectrum of economic activity?

Hofler:
That’s extremely important. Everybody needs to be nimble right now. The
big deal is being able to adjust to the circumstances that are just
crazy right now. It's having visibility into where you're spending
specifically and when you're getting paid. Also, visibility into
automating the invoice cycle and the AP process so that now you can do
something with that with an early paid invoice that is approved maybe 45
days before it's due.
This
opens up working-capital opportunities, where companies are offering
early pay discounts to their suppliers. Suppliers who don't have the
same access to cash flow that they had pre-2008 are accessing that,
saying thank you, and are willingly giving up a discount so that they
are lowering their days sales outstanding (DSO).

Buying
organizations are getting something for their cash that they're
certainly not getting with that cash sitting in bank accounts earning
zero percent right now. Both sides are winning, and all of that's really
made possible by automation.

Gardner: Vishal,
this notion of being nimble, is that something that came up in your
recent research and how important is that for companies to once again
push the needle on efficiency?

Impact of AP

Patel:
It's very important, especially when you start thinking about the
impact that AP can have on other parts of the organization like
procurement and finance. When you look at the P2P
process, it's one transaction that all of these different stakeholders
are connected to. But all the stakeholders are not connected to each
other necessarily, and that's where automation comes in. That's when you
get the added value of collaboration between the P2P cycle.

Gardner:
And to this notion that interest rates are so low -- and we're told
that they're going to remain that way for perhaps a couple of years --
making your capital work for you has become quite important. What is
this new automation at the AP level bringing in terms of freeing up
capital and giving companies just another tool, another arrow in their
quiver, to get better productivity?

Patel: If you think about the manual environment where you're receiving paper invoices, paper purchase orders (POs).
It's a difficult, really tedious work to get the right level of
information at the right time, and then make decisions about how to most
appropriately utilize cash.

One of the interesting
things we found the research was that when we asked the survey
participants what some of the biggest drivers are for the AP groups, the
top one was improving processing efficiency, which is as expected, and
it's been the same way for the last several years.

But
the following two were the ones that were surprising. Number two and
number three on the list were improving cash and working capital and
improving days payable outstanding (DPO).
Previously, we wouldn’t even have seen those on the list, but these are
much higher on the list in 2012.

Any organization that can have visibility into their opportunities, into
their process, and control over that process benefits from this.

Gardner: Drew,
we recognize that large companies that are moving lots of goods that
have a lot of capital involved are deeply incentivised to do this, but
what about smaller organizations? Is this now something that is
attainable by them, and are they starting to see benefits there too?

Hofler:
Absolutely. Any organization that can have visibility into their
opportunities, into their process, and control over that process
benefits from this. Smaller organizations on the buyer side are most
definitely seeing the value of this. Lots of smaller organizations on
the invoice sending and payment receiving side, what we would
traditionally call the supplier side, the seller side, are seeing huge
benefits from this.

For example, one of the suppliers on the Ariba network company called Mediafly,
invoices with a very large entertainment company. They're a small
company, they're a startup, and they're in growth mode. They have a full
visibility into when they're paid and their CFO has told us that it's
just like gold being able to see that.

So Mediafly has
visibility into not only when their invoice is going to get paid, so
that they can forecast on that, but also the ability to accelerate that
payment on demand. They can literally click a button and get paid when
they want.

They have told us that that has allowed
them to hire, to accelerate their production of their products by hiring
new developers, so that they can actually get a product out the door.
They told us an example where they were able to get a new product out
the door before they had planned, and they were scheduled to get paid on
that original invoice.

Accelerated growth

And
so it accelerated their growth. They've been able to avoid using credit
lines because they have access to this through this kind of networked
economy effect. They're able to see what's going on, and have the
capability to make a strategic decision to accelerate cash, and it has
really helped them as a small company.

Gardner:
So visibility, predictability, understanding each part of the process,
knowing scientifically or practically what's going to happen, how does
collaboration fit into this Vishal? Where is that now adding another
element of benefit?

Patel: In general within
organizations, collaboration is a theme nowadays, with the workforce
being quite diversified in terms of location. People are relying on
collaborative efforts to help improve performance overall across the
enterprise. And I think that's no different between procurement, AP, and
treasury. Their collaborative efforts are going to improve each of
their processes and the visibility they all have into the procure-to-pay
process.

For example, procurement because of
e-invoicing and supplier networks and just the visibility that AP is
providing procurement, can improve their monitoring and measurement of
supplier performance with invoice accuracy, how the're doing on
payments, this helps them understand the total cost of working with a
supplier.

That's one example of how procurement and AP
can work together. But with treasury being able to understand what
invoices are coming due, when they're coming due, when is the best time
to make a payment, AP is able to deliver this kind of information in an
accurate and real-time way, and that enhances their collaboration as
well.

Their collaborative efforts are going to improve each of their processes
and the visibility they all have into the procure-to-pay process.

Gardner:
Drew, of course we're seeing lots of advancements in the field around
cloud computing, mobile devices, and social networks, where people are
becoming more accustomed to having an input and saying what's going on
along the way. Technically, how is collaboration being driven into what
Ariba is doing specifically around this AP automation?

Hofler:
It all revolves around visibility into information, and as you said,
access to make decisions based on that from across silos inside of
organizations. For example, one of our customers, Maxim Healthcare,
had very little visibility into procurement, across AP, and into their
suppliers. All three of these stakeholders had very little visibility
into what was happening, once a PO went out the door and once an invoice
came in. There were spot processes that happened, but they were in a
black box.

They had no way to enforce compliance to
contracts. So an invoice comes in but it's not connected to the original
document which is essentially a contract that enforces, say, volume
discounts on widgets or whatever it might be. By automating the P2P
process, by bringing all of these things into a kind of a network
solution, the various stakeholders are able to see what's going on.

From
the procurement side, they can see the line items on the invoice, so
they can do better spend management and better analysis on their spend.

From
a contract compliance perspective, the AP department can automatically
connect the data in the invoice to that contract, to ensure that they're
actually paying what they should be paying, and not too much.

Increased visibility

And
from a supplier perspective, they benefit both from being able to see
their invoice approval status, and when they're planning on getting
paid. They're also able to access early payment, as I mentioned. One of
the interesting benefits of this to Maxim was actually an increase in
their DPO, a working-capital metric.

Procurement and AP
typically may not have an impact on working-capital metrics that's
usually a treasury and finance function. But when they had full
visibility into their invoices and their payment terms, Maxim found that
they were actually able to pay suppliers on time, rather than the
practice of paying them early, because they just didn't have visibility
into when they were supposed to pay them.

For a lot of
my customers, we find that when we look at their vendor master, they
often will have a lot of immediate terms with suppliers that they didn't
realize they had, and their DPO was low as a result. So just getting
visibility into all that gives them the ability to enforce the terms
that they already have, and the net of that is to increase their DPO as
Maxim saw.

Gardner: Now of course, we're in the
networked economy. We've been talking about this in the context of an
individual enterprise or a small business, but when more visibility data
and accessed information along with collaboration is perhaps exploited
at an industry or vertical level, there are some other benefits.

So
does collaboration go beyond just what we're doing as an internal
process? What about getting more data about what's going on in the whole
industry and applying that to some of these business activities and
decisions?

That's definitely huge and I would agree that it's right over the horizon.

Patel:
Absolutely. When you have trading partners on a network and a whole
cluster of them in a specific industry, there’s tons and tons of data
that can be collected on invoicing, payments, purchase orders, spending
habits, spending behaviors, and certain commodities.

There
is a whole host of data that's collected, that's maybe the next phase
of where the supplier networks go and how they make use of information.
To date, I think it's still a matter of getting the scale and getting
the network to a size where that information is available and makes
sense. That's probably the next phase of it.

Gardner:
Drew, a similar question. This notion of taking the data and analysis
add another abstraction level into an industry or vertical. This seems
to me to be really something that can add lower costs and higher
productivity to a much larger set of participants?

Hofler:
I would definitely agree with that Dana. It's really the promise of the
network, as Vishal pointed too. As you get the network effect and you
get the massive amounts of data, there is just a tremendous amount of
data flowing through on a daily basis on the Ariba network.

That's one of the things that's very exciting about our recent acquisition by SAP. There’s a big data program called HANA
that they're developing and pushing. That's going to blow out the
market. The amount of data that we can bring into that, and then slice
and dice to the various different uses that's required to get
intelligence into some of the things that Vishal was talking about.
That's definitely huge and I would agree that it's right over the
horizon.

Metrics of success

Gardner:
As we start to think about closing out, I'd like to try to identify
some more metrics of success. You've talked about Maxim Healthcare. Do
you have any other examples of companies that have been doing this and
what sort of benefits have they've been able to enjoy and share?

Hofler: Most of the companies that come onto the Ariba network to do invoice automation, we call it Smart Invoicing,
are able to set up certain parameters so that by the time an invoice
gets to them, it's very clean. The suppliers give an immediate feedback
on things that need to be fixed, as the invoice is being submitted, and
then they get it very clean.

The result of that is that
we have many customers who have 95 percent, 98 percent straight-through
processing. Invoice comes through, it goes straight into their back end
system and it's scheduled for payment and they're ready to go.

One of our customers, Ecolab Inc.,
has employed this. They had a couple of big problems, for example,
where they had no visibility into their shipment information from the
supplier on the front end of the process and their suppliers again had
no visibility into payment on the back end of the process.

There are benefits to thinking more long term about the entire process.

A
very interesting thing happened. When they weren't able to get
visibility into shipment, they couldn't invoice their customer until
they knew they had received the shipment that was going to be part of
what they are invoicing their customer for from their supplier.

That
led to an extended DSO, which is not a positive. By getting visibility
into this, they were able to invoice on shipment and lower their DSO.
Traditionally procurement and AP would not play in terms of DSO, but now
they're able to contribute to the more strategic level of the company
by impacting DSO in a positive way.

Additionally, they
had risk in their supply chain from their suppliers not knowing when
they were going to get paid, and sometimes threatening to and carrying
through withholding shipment until they received payment on a particular
thing. Now, their suppliers can see exactly when they're going to get
paid and that has increased satisfaction and lowered the risk for them
as well.

Just by automating the process and approving
invoices in time, Ecolab increased their capture of contracted early-pay
discounts from somewhere around 25 percent or 30 percent that they were
able to capture before, to upwards of 95 percent. So that's a huge
benefit to them as well.

Gardner: Vishal, in
closing out, how do organizations get started on this? What are some
typical steps that they should take in order to avail themselves of some
of these benefits that we've been discussing?

Patel:
One of the key things is, when looking at an automation initiative in
the procure-to-pay process, to think about the process holistically,
instead of focusing on automating one part, one process in AP or in
procurement. There are benefits to thinking more long term about the
entire process, how it's going to integrate, what technologies are going
to be used for each part of the process, and whether that's all done at
once or over phases.

Best practices

Gardner: Drew any thoughts from your perspective on getting started, best practices, or even where to get more information?

Hofler: Absolutely, for more information, very easily come to ariba.com
and look at all of our solution pieces. For getting started, I would
agree with Vishal. In the networked economy, it's all about sharing
information across silos, across stakeholders, and doing so in an
automated fashion.

There are a lot of pieces to that
and a lot of steps and processes along the way, where that information
can be captured and shared across these parties.

In the networked economy, it's all about sharing information across
silos, across stakeholders, and doing so in an automated fashion.

A
lot of people take it all at once in P2P process. Other people will
automate POs and then invoice automation and then early payment
discounting. I say look at where your communication breaks down
internally over these processes, and let's target that first with some
automation that can bring visibility into that.

Gardner:
We've been discussing how businesses are exploiting collaboration and
automation advances and procurement and accounts payable to produce new
types of productivity benefits. I'd like to thank our guests, Drew
Hofler, Senior Solutions Marketing Manager of Financial Solutions for
Ariba, now an SAP company. Thank you, Drew.

Hofler: Thank you.

Gardner:
And Vishal Patel, Research Director and Vice
President of Client Services at Ardent Partners. Thank you, Vishal.

Patel: Thank you, Dana.

Gardner:
This is Dana Gardner, Principal Analyst at Interarbor Solutions. You've
been listening to a sponsored BriefingsDirect podcast. Thanks to our
audience for joining, and don't forget to come back next time.